Startups defy odds in Japan

Thursday

Oct 4, 2012 at 6:00 AMOct 4, 2012 at 8:34 AM

By Hiroko Tabuchi THE NEW YORK TIMES

As Japan’s aging tech giants like Sony and Panasonic continue to falter, a new generation of Japanese technology entrepreneurs is stepping up. While their numbers are small compared to those in the United States, they are turning to a bevy of startup incubators and even to financing from Silicon Valley.

“There’s a lot of uncertainty in Japan right now, and that’s actually made younger Japanese more willing to take risks and try out new ideas,” said Hiro Maeda, 26.

Maeda went to college at Bucknell University in Pennsylvania and worked on several startups in the U.S. before returning to Japan to create Open Network Lab, a Tokyo-based incubator that has financed five rounds of startups since its birth in 2010. Maeda said it received close to 100 applications during its latest round this year, more than twice the number from the previous year.

Japan badly needs an infusion of entrepreneurial blood. With its economy sluggish and its population graying, the country slipped to No. 25 in the most recent ranking of global innovation by the United Nations.

It has become increasingly clear that the country’s big electronics firms cannot be counted on to drive innovation. Japan’s top tech giants in products from televisions to smartphones — their competitiveness sapped by a strong yen — are racking up huge losses and being overtaken by nimbler, cheaper overseas rivals.

Still, Japan’s tech entrepreneurs have much to overcome if they hope to succeed where the mainline giants have not.

Japanese society continues to venerate lifetime company loyalty, while penalizing failure. The government has created a cumbersome web of regulations that hampers new entrants. And risk-taking is absent not just among would-be entrepreneurs, but also among investors.

According to the Tokyo-based Venture Enterprise Center, the value of investments by its 50 or so venture capital fund members increased to 24.6 billion yen ($316 million) in 2011, 35 percent higher than the previous year.

That was a fraction of the $12.6 billion in venture funding raised by Silicon Valley companies that year, according to Ernst & Young.

“Whether you’re talking about driving innovation or creating new jobs, it’s clear that Japan needs to try something new,” said Taizo Son, who helped start Yahoo Japan with his brother, Masayoshi Son, in 1996, and now runs the venture capital fund Movida Japan. “But the odds are still stacked against people who dare to try.”